The Government of Nepal has officially brought ride-sharing services under the tax net through the Economic Act, 2083. Platforms such as Pathao, inDrive, Yango, Tootle, and other app-based ride-sharing services are now subject to new VAT, income tax, and vehicle registration provisions.
This article explains the new 5% VAT, 1% advance income tax (TDS), and the requirement for commercial (black) number plates for ride-sharing vehicles.
Overview of the New Ride-Sharing Tax Rules
The Economic Act, 2083 introduced several major changes for Nepal’s rapidly growing ride-sharing industry:
- 5% VAT on ride-sharing services
- 1% Advance Income Tax (TDS)
- Mandatory PAN for riders
- Commercial registration with black number plates for ride-sharing motorcycles and scooters
- Greater compliance responsibilities for digital ride-sharing platforms.
1. 5% VAT on Ride-Sharing Services
Unlike the standard 13% VAT applicable to most taxable services, the government has introduced a special VAT rate of 5% specifically for ride-sharing services.
This VAT applies to fares charged through ride-sharing platforms such as:
- Pathao
- inDrive
- Yango
- Tootle
- Other app-based ride-sharing operators
The objective is to formally integrate the ride-sharing industry into Nepal’s VAT system while maintaining a lower tax rate than the standard VAT.
Who Pays the VAT?
Passengers ultimately bear the VAT as part of the ride fare, while the ride-sharing platform is responsible for:
- Collecting the VAT
- Issuing the appropriate tax invoice (where applicable)
- Depositing the VAT with the Inland Revenue Department (IRD)
Individual riders are generally not required to register for VAT solely because they provide rides through these platforms, as the collection responsibility rests with the platform under the new framework.
2. 1% Advance Income Tax (TDS)
Besides VAT, the Economic Act has introduced a 1% Advance Income Tax on ride-sharing income.
The ride-sharing platform must deduct 1% of the ride income before making payment to the rider.
This tax is:
- an advance income tax, and
- adjustable against the rider’s final income tax liability when filing the annual tax return.
It is not an additional permanent tax, but a withholding mechanism to improve tax compliance.
3. Difference Between VAT and TDS
Many people confuse VAT and TDS, but they serve different purposes.
| Particular | VAT | TDS |
| Nature | Indirect Tax | Direct Tax |
| Rate | 5% | 1% |
| Collected From | Passenger | Rider’s income |
| Deposited By | Platform | Platform |
| Adjustable | No | Yes (against annual income tax) |
4. Commercial (Black) Number Plate is Now Mandatory
One of the biggest regulatory changes is the requirement that motorcycles and scooters used for ride-sharing must be registered as commercial (public/hired) vehicles.
Previously, many riders operated using red number plates, which are intended for private vehicles.
Under the new law:
- Ride-sharing motorcycles must be registered as commercial vehicles.
- They must obtain black number plates before operating legally as ride-sharing vehicles.
The objective is to:
- distinguish commercial and private vehicles,
- improve passenger safety,
- facilitate transport regulation, and
- enhance tax compliance.
5. PAN Registration for Riders
Riders earning income through digital ride-sharing platforms should obtain a Permanent Account Number (PAN).
This allows:
- proper tax reporting,
- adjustment of the 1% advance income tax,
- compliance with the Income Tax Act.
6. Practical Example
Suppose a passenger pays NPR 1,000 for a ride.
| Particular | Amount (NPR) |
| Ride Fare | 1,000 |
| VAT @ 5% | 50 |
| Advance Income Tax (1%) | 10 |
| Net settlement | As per the platform’s settlement model |
The exact settlement depends on the platform’s commission structure, but the platform is responsible for deducting and depositing the applicable taxes.
Impact on Riders
Advantages
- Formal recognition of ride-sharing services.
- Clear tax framework.
- Better legal protection.
- Improved industry regulation.
Challenges
- Higher compliance requirements.
- Mandatory commercial registration.
- Additional operating costs.
- Slight increase in ride fares due to VAT.
Impact on Passengers
Passengers may notice:
- a modest increase in ride fares due to the 5% VAT,
- better regulation of ride-sharing vehicles,
- improved accountability through commercial registration.
Conclusion
The Economic Act, 2083 marks a significant shift in Nepal’s regulation of the ride-sharing sector. By introducing a 5% VAT, 1% advance income tax (TDS), and mandatory commercial registration with black number plates, the government aims to formalize the industry, improve tax compliance, and strengthen passenger safety.
Both ride-sharing platforms and riders should familiarize themselves with these new requirements to ensure full compliance with Nepal’s tax and transport laws.
Frequently Asked Questions (FAQs)
Is VAT applicable to ride-sharing services in Nepal?
Yes. A special VAT rate of 5% applies to ride-sharing services under the Economic Act, 2083. (Meroauto)
Who pays the 5% VAT?
The passenger pays the VAT as part of the fare, while the ride-sharing platform collects and deposits it with the IRD.
What is the 1% tax on ride-sharing?
It is a 1% advance income tax (TDS) deducted by the platform from the rider’s earnings and adjustable against the rider’s annual income tax.
Can motorcycles with red number plates continue ride-sharing?
No. Under the new framework, motorcycles used for ride-sharing must be registered as commercial vehicles with black number plates.
